INDUSTRIAL output grew faster than market expectations, providing support for the economic growth in the second quarter.
The Industrial Production Index increased 7.6 per cent in May due to increases in all the indices - manufacturing (6.5 per cent), mining (11.5 per cent) and electricity (6.6 per cent).
According to the Statistics Department, the manufacturing output rose due to activities in the major sub-sectors such as petroleum, chemical, rubber and plastic products (10.5 per cent), electrical and electronics products (6.7 per cent) and non-metallic mineral products, basic metal and fabricated metal products (3.9 per cent).
Santitarn Sathirathai from the Credit Suisse Bank described the the IPI gain as quite broad-based while the manufacturing sales growth in May have also been robust.
"Since both industrial production and manufacturing sales serve as inputs into our GDP model, the improvement in these two variables will support year-on-year growth in the second quarter,"he said.
"To avoid quarter-on-quarter decline, production needs to increase 4 per cent seasonally adjusted month-on-month (non-annualised) in June - a high bar to jump over under the current global environment."
But Sathirathai said domestic demand strength, especially investment, will limit the downside risk to sequential GDP growth, placing the year-on-year GDP prints at a robust 4.6 per cent.
CIMB Investment Bank regional head of economics Lee Heng Guie remarked that Malaysia's industrial production has perked up in tandem with a turnaround in exports.
"Yet, we prefer to tread on the side of caution as the industrial growth momentum could be battered by slowing global engines."
Lee expects industrial production to remain weak until the third quarter before picking up in the fourth quarter.
CIMB has raised its full-year factory output growth to 3.0-3.5 per cent from 1-2 per cent previously.
Meanwhile the Statistics Department also announced that the manufacturing sector's sales grew by 10 per cent in May to record RM52.5 billion compared with RM47.7 billion in May last year.